Sovereign Gold Bonds: An Easy And Smart Alternative To Physical Gold

• Sovereign Gold Bonds (SGBs) let you invest in gold without worrying about safekeeping. 

• Since they are backed by the Indian government and issued by the RBI, they eliminate the risk of theft and storage concerns associated with physical gold.

• Unlike physical gold, SGBs provide a fixed 2.50% annual interest, paid biannually.

• Their final redemption value is linked to gold prices, meaning you benefit from price appreciation while earning steady interest.

• Holding SGBs until maturity makes capital gains tax-free, unlike physical gold, which attracts taxes upon selling. 

Gold is one of the most preferred and trusted investment options globally. However, it comes with its own risks and challenges. Sovereign Gold Bonds (SGBs) are a secure alternative that allows you to invest in gold without the obligation of safekeeping. 

The Sovereign Gold Bond scheme is one of the most secure types of gold investment. The Reserve Bank of India directly backs it up on behalf of the Indian government. Unlike physical gold, you hold SGBs digitally, which eliminates the risk of theft while providing you with tax benefits.

Sovereign gold bonds are digital government securities and are denominated in gold, where 1 SGB represents 1 gram of gold. They offer fixed interest on your investment, aimed at providing more capital gains. 

The following are some of the notable features of the Sovereign Gold Bond scheme:

• Maximum Investment: For individuals and HUF, the maximum investment available is 4 kg, and the minimum is one gram. The limit goes up to 20 kg for entities and trusts as per the rules. 

• Holding: You can hold SGBs jointly or individually and make transactions online through commercial authorised bank websites. 

• Interest Rate: As per the regulations, the current SGB interest rate provided is 2.50% per annum. This rate applies to your initial investment, and you receive it twice a year (biannually) for 8 years until maturity. 

• Returns: The returns depend on the market price of the gold and you receive the interest amount directly into your provided account. 

• Tenure: The maximum SGB maturity period is 8 years. However, you may choose to exit after the 5th year of maturity. When the SGB matures in 8 years, it comes up for final redemption. The value is decided by the closing price of 999 pure gold in the last 3 working days. 

To make a well-informed buying decision for SGBs, you need to know the advantages of SGBs and the differences of SGBs vs. physical gold. This will help you assess the associated costs and help you plan your finances. Take a look at the table below:

One major sovereign gold bonds investment benefit includes tax exemption under Section 80C of the Income Tax Act. These exemptions are available on the capital gains when you hold the sovereign gold bonds until maturity. 

Keep the following in mind when calculating your tax liabilities:

• No tax benefits are applicable on lump-sum deposits of SGBs

• The interest provided on the SGBs returns is not tax-exempt

• Tax Deducted at Source (TDS) is not applicable to SGBs

As per the information provided by the RBI, you can invest in SGBs online and offline. To apply for SGBs, you must gather and provide some documents, PAN Card, and follow KYC norms. 

Offline Application:

1. You must get the application form from banks, SHCIL offices, post offices or designated agents.

2. Fill out the form and submit it to the bank or post office branch.

3. Provide some required identification documents to purchase SGBs.

Online Application:

1. Log in to the mobile app or internet banking of authorised banks (which you can check on the RBI website).

2. Click ‘Investments’ and choose ‘SGB’.

3. Proceed after reading the terms and conditions.

4. Fill out the registration form and click the ‘Submit’ button.

5. Enter the amount you wish to invest and nomination details.

6. Provide the mobile number and enter the OTP received.

7. After OTP verification, click ‘Submit’ to complete the process.

1. How do I buy Sovereign Gold Bonds in India?

You can apply for sovereign gold bonds offline and online. To apply offline, you must get the application form from authorised banks, SHCIL offices, or post offices. Fill out the application form and submit it with some documents. For the online process, you need to fill out the registration form on the authorised bank’s website.

2. Are SGBs safer than storing physical gold?

Yes. SGBs are safer than storing physical gold as they are available in a dematerialised form and eliminate the risk of robbery or theft. They are also backed by the government, making it more secure.

3. What is the typical interest rate on SGBs?

The current interest rate applicable to SGBs is 2.50% per annum. 

4. Can I sell my SGBs before maturity?

Yes, you can sell SGBs before maturity to the secondary market for more capital gains. However, you must still complete a lock-in period of 5 years to sell them. 

5. Do I still benefit if gold prices rise?

Yes. You can benefit from the gold price rise as the final redemption value depends on the closing value of 999 pure gold in the last 3 working days.

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